Arrest provisions under CGST Act challenged in Bombay High Court

While the government claims that companies are booked under GST laws for fraudulently claiming the input tax credit, experts find loopholes in the provisions, particularly those related to arrests

A writ petition has been filed in the Bombay High Court challenging the arrest provisions under the goods and services tax (GST) laws. 

While the government claims firms are booked under GST laws for fraudulently claiming input tax credit (ITC), experts find loopholes in the provisions, particularly those related to arrests. 

Abhishek Rastogi, partner at Khaitan & Co, who has filed the petition, said the Section 69 of the Central GST Act is arbitrary since it gives powers to GST commissioners to arrest a person if he has “reasons to believe” that the person has claimed fraudulent ITC. Commissioners can order up to five years of arrest of a person who he has reasons to believe is engaged in fraudulent claims. “Reasons to believe are subjective in nature and are prone to misuse,” Rastogi said.  

Section 132 (1) of the Central GST Act provides that specified offences involving tax evasion in excess of Rs 5 crore will be cognizable and non-bailable, and that officials can proceed with arrest as per the procedure laid out under Section 69 of the CGST Act.

So the constitutional validity of section 69 read with section 132 (1) of the Act has been challenged in the court.

Rastogi said arrests that are being made involve interpretation of law and not tax evasion. As such, these require in-depth analysis so that personal liberty of persons involved is not compromised which is enshrined in Article 21 of the Constitution.

"The arrest provision can be used only in those cases wherein there is tax evasion and the adjudication process is complete. Interestingly, 'reason to believe' is mentioned both in the GST power to arrest provisions and section 438 of the Indian Penal Code for anticipatory bail and hence there must be a fair balance before any harsh step," he said.

According to the Orissa HC’s observation in a case pertaining to jail of a businessman, 1,620 cases of fraudulent claims for ITC involving a sum of Rs 11,251.3 crore were registered during 2018-19. The number of cases stood at 535 involving a sum of Rs 2,565.40 till June 25 during 2019-20, the court said.

The GST authorities have arrested 140 "unscrupulous" persons including five chartered accountants in their nationwide drive launched against fake invoices frauds since the second week of November. They have booked 1,488 cases against 4,839 entities, said sources in the department of revenue (DoR). End